China to cut bank reserves as 'hard landing' fears continue

China's central bank cut the amount of cash that banks must hold as reserves
on Saturday, in another attempt to head off a sharper slowdown in the
world's second-largest economy.

Beijing has already cut bank reserve requirements twice since December as it seeks to boost lending to spur growth, but economists have called for more policy support as economic figures continue to disappoint.Photo: REUTERS

Telegraph staff and agencies

1:05PM BST 12 May 2012

The People's Bank of China, the central bank, said it would cut banks' reserve requirements by 0.50 percentage points effective from May 18, according to a statement posted on its website.

The move was widely expected after China reported growth in industrial production slumped to a three-year low of 9.3pc in April, adding pressure on Beijing to ease monetary policy.

Sebastien Galy, senior currency strategist at Societe Generale, said: "This is a reaction to signs of a deeper slowdown than expected so that its positive impact outside of Chinese equities will be contained. Nonetheless policy makers are steadily starting to react the crisis (ECB, Fed still to come) which is encouraging."

China's economy grew an annual 8.1pc in the first quarter of 2012, its slowest pace in nearly three years.

The government is targeting economic growth of just 7.5pc for the whole year, down from actual growth of 9.2pc last year and 10.4pc in 2010.

Beijing has already cut bank reserve requirements twice since December as it seeks to boost lending to spur growth, but economists have called for more policy support as economic figures continue to disappoint.

After the latest move takes effect, China's reserve requirement for most large banks will fall to 20pc.

China also said on Friday that the consumer price index, the main gauge of inflation, rose 3.4pc year on year in April, compared with 3.6pc in March.